VATICAN CITY (Reuters) - Pope Francis set up a special commission of inquiry on Wednesday to reform the Vatican bank, his boldest move yet to get to grips with an institution that has embarrassed the Catholic Church for decades.
The high-powered, five-member panel, which includes four prelates and a female Harvard law professor, will report directly to him, bypassing the Vatican bureaucracy that itself has sometimes been hit by allegations of scandal and corruption.
The Institute for Works of Religion (IOR), as the bank is formally known, has long been tarnished by accusations that it has failed to meet international transparency standards intended to combat money laundering and tax evasion.
The Vatican said the commission, which Francis set up with a personal decree known as a "chirografo," would enable him "to know better the juridical position and the activities of the Institute to allow an improved harmonization with the mission of the universal Church".
It said the commission would have full powers to obtain all documentation and data necessary and bypass usual rules that oblige officials to respect the secrecy of their office.
The decree ordered the commission to give its conclusions and all supporting documents directly to him.
The bank, founded in 1942, will continue to be run by current administrators and be overseen by existing regulators while the commission carries out its task.
Vatican spokesman Father Federico Lombardi said the bank was not being put under "special administration" but that the commission would have ample powers.
The announcement of the new commission came as Vatican sources confirmed media reports that Italian magistrates were investigating Monsignor Nunzio Scarano, an accountant in another Vatican department that deals with financial administration, on suspicion of money laundering.
Vatican sources told Reuters in April the pope, who has said he wants the Church to be a model of austerity and honesty, could decide to radically restructure the bank or even close it.
Francis has laid great emphasis on removing an image of privilege from Church operations, and IOR's new president Ernst von Freyberg, a German, has begun a review of all its accounts and activities.
The commission is made up of Italian Cardinal Raffaele Farina, French Cardinal Jean-Louis Tauran, Spanish Bishop Juan Ignacio Arrieta Ochoa de Cinchetru, American Monsignor Peter Wells and Mary Ann Glendon, a Harvard professor who is president of the Vatican's Pontifical Academy of Social Sciences and a former U.S. ambassador to the Vatican.
The papal decree says bank employees as well as staff in other Vatican departments had to cooperate with the commission.
The European anti-money laundering committee, Moneyval, said in a July report that the IOR still had to enact more reforms in order to meet international standards against money laundering.
The Vatican is due to give Moneyval a progress report this year.
Von Freyberg, 54, a German lawyer, told Reuters in an interview this month he was committed to total transparency and has started a review of the IOR's some 19,000 accounts, mostly held by Vatican employees and departments, orders of priests and nuns, and charities.
On Wednesday, he declined to comment on the Pope's decision to set up the commission.
The bank has assets of $7.1 billion under management and profits of 86.6 million euros ($114.3 million), used to support Catholic activities around the world. It does not lend money.
Last year, the Vatican detected six possible attempts to use the Holy See to launder money. At least seven have been detected so far this year.
The bank is trying to clean up its image after a history of scandals, most notably in 1982 when it was enmeshed in the bankruptcy of Italy's Banco Ambrosiano, whose chairman Roberto Calvi was found hanging from London's Blackfriars Bridge.
In 2010, Rome magistrates investigating money laundering froze 23 million euros ($33 million) held by the IOR in an Italian bank. The IOR said it was transferring its own funds between accounts in Italy and Germany. The money was released in June 2011 but the investigation continues.
Reporting By Philip Pullella; Editing by James Mackenzie and Robin Pomeroy